Has the Adoption of Inflation Targeting Represented a Regime Switch? Empirical evidence from Canada, Sweden and the UK

Jerome Creel and Paul Hubert

No 2008-25, Documents de Travail de l'OFCE from Observatoire Francais des Conjonctures Economiques (OFCE)

Abstract: Since 1990, a growing number of countries have adopted inflation targeting (IT) around the world. Empirical evidence on its advantages has been mixed so far, and most assessments have been based on a control group methodology. In this paper, using a MSVAR technique, we assess the adoption of IT in three industrialised countries over time; in addition, we compare their outcomes with a non-IT country, the US. Results are manifold. First, an inflation targeting regime exists, although it does not constitute a change in monetary policy reaction. Second, this conclusion is robust on a subsample excluding the periods of high inflation and early sharp disinflation. Third, the sacrifice ratio of higher output volatility generally attributed to inflation stabilisation policies is not sensitive to the adoption of inflation targeting. Fourth, this framework is shown to be conducive to higher monetary policy leeway.

Keywords: Inflation targeting; MSVAR; Counterfactuals. (search for similar items in EconPapers)
JEL-codes: E52 E58 (search for similar items in EconPapers)
Date: 2008
New Economics Papers: this item is included in nep-cba, nep-mac and nep-mon
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Citations: View citations in EconPapers (3)

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Related works:
Journal Article: HAS INFLATION TARGETING CHANGED THE CONDUCT OF MONETARY POLICY? (2015)
Working Paper: Has Inflation Targeting Changed Monetary Policy Preferences? (2010)
Working Paper: Has the Adoption of Inflation Targeting Represented a Regime Switch? Empirical evidence from Canada, Sweden and the UK (2008)
Working Paper: Has the Adoption of Inflation Targeting Represented a Regime Switch ? Empiric Evidence from Canada, Sweden and the UK (2008)
Working Paper: Has the Adoption of Inflation Targeting Represented a Regime Switch? Empirical evidence from Canada, Sweden and the UK (2008)
Working Paper: Has the Adoption of Inflation Targeting Represented a Regime Switch ? Empiric Evidence from Canada, Sweden and the UK (2008)
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